One 9%+ yielding dividend stock I snapped up last week!

Christopher Ruane details the reasons that led him to buy a blue-chip FTSE 100 dividend stock last week, with a near-10% yield.

| More on:
British bank notes and coins

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

April is a month when a lot of investors review their Stocks and Shares ISA. A new tax year can help turn one’s mind to what to do in the market, after all. I had been thinking about how to boost my passive income streams and last week snapped up a FTSE 100 dividend stock that has among the highest yields in that index.

The 9.8% yield means that, for every £100 I invest now, I will hopefully earn £9.80 in dividends annually. Not only that, but the company has raised its dividend annually over the past few years. If that continues, my prospective yield might be even higher than 9.8%.

That certainly attracts me, as the average FTSE 100 dividend yield right now is below 4%.

Household name with millions of customers

Still, I do not choose shares to buy just based on their yield.

After all, dividends are never guaranteed to last. So, while the yield does play a role in my decision making, it is at the end of the process.

Whether for a growth or dividend stock, I first look to see whether I can buy a stake in what I think is a great company at an attractive price.

In this case, I felt the answer was yes.

The dividend stock I bought this week is M&G (LSE: MNG). The asset manager is a household name, with a well-regarded brand and operations across markets worldwide. It has millions of retail customers, as well as an institutional business.

Why I like the business

There are quite a few things I think look good about M&G from an investment perspective that helped shape my decision to purchase.

One is the size and durability of the market. Demand for asset management is high and I expect it to remain that way, even if there are ebbs and flows depending on how much disposable income investors are sitting on.

Another attractive feature is the structural economics of that market. Asset management involves large sums – M&G has a whopping £344bn of assets under management and administration – and so even small fees and charges can soon mount up, helping asset managers profit.

Servicing millions of retail customers offers economies of scale. The marginal cost of servicing the five millionth client is likely very small compared to the first client, yet they can be charged the same fees. That is good for profit margins.

Long-term dividend potential

That does not mean that M&G faces no risks. It does.

That large, attractive market attracts lots of rivals. That can put pressure on profit margins. The company is in the middle of a cost-cutting programme and those can bring risks as well as benefits, especially if customers feel they lead to reduced service levels.

On balance, though, I see this as a strong business and think the share price is attractive. As blue-chip dividend stocks go, a 9.8% dividend yield strikes me as very attractive indeed!  

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

C Ruane has positions in M&g Plc. The Motley Fool UK has recommended M&g Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

5.4% yield! 2 UK dividend shares to consider for a £1,080 passive income

I think these UK shares could provide a large and sustainable passive income. And they could be great buys today…

Read more »

Investing Articles

Here’s how investing £250 a month could bag me over £10K in passive income annually

This Fool breaks down how she would go about building a passive income stream worth over £10,000 annually to enjoy…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

I’d snap this FTSE 250 stock up in a heartbeat for juicy returns and growth!

Sumayya Mansoor explains why this FTSE 250 property stock is firmly on her radar as she looks to buy stocks…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

1 dirt-cheap FTSE 100 stock investors should consider buying in June

The FTSE 100 is littered with bargains, according to our writer. She explains why investors should be taking a closer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

The Legal & General share price has gone nowhere. Why?

The Legal & General share price has performed much worse than the the FTSE 100 over the past five years.…

Read more »

Investing Articles

Where will the BT share price go in the next 12 months? Here’s what the experts say

The BT share price has been sliding for years. But after the latest set of results, it looks like the…

Read more »

Investing Articles

Are National Grid shares now a brilliant bargain?

National Grid shares look exceptionally cheap following last week's selloff. Is now the time to buy the FTSE 100 firm…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

Up more than 15%! — this small-cap company is delivering phenomenal dividend growth

There’s more good news in this company’s interim report and it may be shaping up as a decent dividend growth…

Read more »